Retail Sales Rose Slightly In August

By THE ASSOCIATED PRESS

Published: September 15, 2007

Retail sales posted a modest gain in August, helped by the biggest jump in auto sales in more than a year. But concerns remained that spending could falter as the housing downturn and turbulence in the financial market weigh on consumer confidence.

The Commerce Department reported Friday that retail sales increased 0.3 percent in August from July, when sales were up 0.5 percent. The strength last month was led by a 2.8 percent jump in auto sales, the biggest increase since July 2006.

Still, the increase in retail sales was about half what had been expected. In another sign of weakness, industrial production in August edged up by just 0.2 percent.

It was the poorest performance in three months, reflecting a 0.3 percent drop in output at American factories, the first decline in manufacturing after five consecutive increases.

A separate report Friday showed that consumer confidence, as measured by the RBC Cash Index, fell to 71.1 in early September, a sharp drop from an August reading of 89.3. It was the worst showing for the survey, done by the polling firm Ipsos, since May 2006.

The gain in industrial output followed much stronger increases of 0.5 percent in July and 0.6 percent in June.

The drop in manufacturing output was accompanied by a decline of 0.6 percent in mining, the category that includes oil production.

These declines were offset by a 5.3 percent surge in output at utilities, reflecting a hotter-than-usual August.

The government also said that the current account, the broadest measure of trade, totaled $190.8 billion in the second quarter, down 3.1 percent from $197.1 billion in the first three months of the year.

The trade improvement supported the view of economists that America's trade deficit, after setting records for five consecutive years, should finally begin to decline in 2007, helped by stronger overseas growth and a weaker dollar, which increases the competitiveness of American products.

Inventories held by businesses on shelves and back lots rose by 0.5 percent in July, the Commerce Department said Friday, while sales at all levels of production were up 1.1 percent.

The weaker-than-expected rise in August retail sales added to worries that consumer spending, which accounts for two-thirds of total economic activity, could falter in coming months.

''We expect a clearly slowing trend,'' said Ian C. Shepherdson, chief United States economist at High Frequency Economics. ''Lower confidence and the accelerating housing collapse will hurt.''

The Federal Reserve is scheduled to meet next Tuesday, and there is a widespread belief that the central bank will cut a crucial interest rate for the first time in four years, hoping that cheaper credit will give the economy a boost.

Financial markets have been roiled since early August by rising worries that loans to consumers and businesses are becoming harder to obtain as banks and other lenders tighten standards.

The credit tightness began with rising defaults on subprime mortgages, home loans provided to borrowers with weak credit. Those problems have spread to other lending areas and disturbed global financial markets.

The retail sales performance would have been much weaker without the big gain in auto sales in August. Excluding autos, retail sales would have fallen by 0.4 percent, the poorest showing in nearly a year.

Part of the in August came from a 2.4 percent drop in sales at gasoline stations, reflecting declining prices.

With oil at a record above $80 a barrel, however, analysts predicted that gasoline prices would start climbing again and that consumers would have less money to spend on other items.